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    May 25, 2010


    Conclusion: At face value, this might seem like a positive report. $0.67 eps vs the Street at $0.51. Earned $0.16 last year. Comps accelerated, GM% gained momentum, and SG&A was up, but DSW still leveraged due to top line. But on the flip side, guidance was rough. I’m not one to get caught up in the ‘guidance game’ but consider the following… DSW earned $1.23 last year, and about $1.07 in final 3 quarters of the year.  Now they grow EPS by 300%+ in Q1 with a $0.67 eps number, while keeping $1.65-$1.75 for the year. What does that tell you about the back half? It says that they are guiding to a range of $0.98-$1.08 for the remaining 3 quarters. That’s flat to down vs. last year.  My sense is that they’re being conservative. But for a small cap, high beta retailer with an awful track record of consistency, you simply can’t play that game in this tape.


      Clean/Street/LY:: $0.67/$0.51/$0.16

      Guidance: Reaffirmed the raised guidance from preannouncement on 4/27/10 of $1.65 - $1.75. The reaffirmed preannouncement raised full year guidance by $0.30. Increased to $1.65 - $1.75 from $1.35 - $1.45.

    Street $1.74

    Sales growth: +16.5%. Sq footage +2%, Comp +16.2%. New store productivity 160% -- -improving on the margin. Revs on the higher side of guidance — 5 store openings in Q1. Comps had easy compare of -4.7% which was down due to -4.7% comps in women’s, 10.2% in men’s, and -4% in athletics.  Only bright side to last year was a +11.6% comp in handbags.

    GM %: 32.8%, up 557bps yy. 1 and 2 year sequential deceleration. Last year’s margins were actually up from decrease in markdowns from enhancements in clearance markdowns but hurt by increased store occupancy and distribution expenses from the dsw.com fulfillment center.

    SG&A: +5.8%, SG&A margin -222 bps, 2 year SG&A dollar growth slowed for 2nd straight quarter.  Last year’s marketing and depreciation expenses grew SG&A. Marketing was up from media and broadcast production spending.  Depreciation was up from capital investments from the dsw.com infrastructure. 

    Balance sheet: Inventories up 3% on 16.5% sales growth. Good spread, sequentially better.

    SIGMA: In clean up mode, mixed SIGMA move with better sales-inventory spread but sequentially worse margins. Now about to go up against another easy compare followed by tough compares from Q3 onward.

    R3: DSW: Quick Take - DSW SIGMA


  • Consolidation continues in sporting goods retail as Sport Supply Group acquires its third business so far this year targeting Kattus Pro Team Sports in the upper Midwest already matching last year’s activity. Tracking the rate of roll-up will become increasingly more difficult once the pending acquisition of RBI by Onex is completed, but our sense is the trend of struggling mom & pop stores will continue to offer growth potential for better capitalized retailers.
  • While health and beauty aids have traditionally been a tough category to sell profitably online, a new and large player has emerged with an interesting twist.  Procter & Gamble has launched a transactional e-commerce site, with prices that appear to be in some cases better than their retail partners.  The site offers reasonable $5 flat rate shipping as well as the ability to take advantage of click-to-use store coupons.
  • According to Comscore, e-commerce sales picked up in 1Q with total revenues up 10% to $33.98 billion.  This double digit growth marks the strongest year over year quarterly gain since 2Q08 when overall e-commerce sales rose 13%.  One of the biggest growth drivers in the quarter was strong spending from the $100K+ households, which increased by 14%.
  • In an effort to drive 2H sales, HIBB announced it will be growing its outdoor offering into more than 50% of its stores by the fall driven by The North Face as well as Columbia. While management did not disclose the penetration of outdoor this time last year, the company’s commitment suggests a 2x-3x increase in the category according to our estimates. While not likely to offset toning inflated 2H sales alone, to the extent TNF jackets continue to outperform in apparel HIBB will not be solely reliant on an improved product cycle in athletic footwear to comp.
  • Despite a cautious outlook for Q2, FL is seeing comps store sales exceed expectations so far through the first two and a half weeks. With the trend shift from casual/lifestyle to running footwear accelerating YTD according to management, we expect domestic athletic footwear to lead continued category improvement and ASP growth over the near-to-intermediate term.

    R3: DSW: Quick Take - Calendar


    Chinese Textile Company Buys 41% Stake in Japanese Apparel Manufacturer and Distributor - Japanese apparel manufacturer and distributor Renown Inc. said Monday it will issue about 4 billion yen, or $44.4 million, worth of new shares to Chinese textile manufacturing company Shandong Ruyi Science & Technology Group. Shandong Ruyi will become Renown’s largest shareholder with a stake of 41%. Shandong Ruyi’s current client base includes international brands and retailers such as Hugo Boss, Oxford Shop, J. Philipp and El Corte Inglés. Renown said it hopes to take advantage of the transaction to grow its presence in the Chinese market. The Japanese company said it plans to capitalize on Shandong’s sales network in China and its experience manufacturing high-quality, low-cost textiles and clothing products. Renown has been battling losses and has been attempting to restructure its operations over the past few years. <wwd.com/business-news>

    India lifted a month-long ban on cotton exports on Friday, prompting cheers from Indian farmers and global garment manufacturers who are feeling the effects of a worldwide cotton shortage. India retained a tight control on its exports of raw cotton, however, by demanding that all exporters must now apply for a license. India’s ban on raw cotton exports was introduced on April 19 in a bid to cool down domestic cotton prices. Prior to the ban, Indian apparel manufacturers complained that unusually high exports had limited the availability of cotton within India, while pushing up the price. <wwd.com/business-news>

    Zappos Suffers Loss of $1.6 mm from Pricing Mistake - Zappos.com created a lot of buzz this weekend, due to a pricing mistake on sister site 6pm.com. From midnight to 6 a.m. Friday, the majority of items listed on the site — which typically sells products at discounts of up to 70 percent off — had a price cap of $49.95. The problem was eventually corrected, but the company still suffered a loss of more than $1.6 million in sales during that six-hour time frame, according to a blog posting by Aaron Magness, director of brand marketing and business development for Zappos. <wwd.com/footwear-news>

    Patagonia Boasts its 2 Best Years Ever - Patagonia had its "two best years ever" during the downturn, according to an interview by Entrepreneur Magazine with founder and owner Yvon Chouinard. Sales are expected to reach near $340 million in its year ended April 2010, up from $315 million over the same period a year ago. <sportsonesource.com>

    Sport Supply Group Acquires Kattus Pro Team Sports - Sport Supply Group has acquired Kattus Pro Team Sports. Eric Kattus, owner of Kattus Pro Team Sports, will be joining the Sport Supply Group with his sales team.  <sportsonesource.com>

    M&S Profit Tops Estimates on New Fashions and Market Share - Marks & Spencer Group Plc , the U.K.’s largest clothing retailer, reported earnings that beat analysts’ estimates on improved sales of fashions and ready meals and said it had a “satisfactory start” to the first quarter. M&S Increased its clothing market share by value across all categories by 30 bps to 11%. <bloomberg.com/news/retail>

    Nautica Signs Footwear Licensing Deal for Men's and Kids' - Nautica Apparel Inc. has entered into an agreement with New York-based E.S. Originals Inc. to manufacture and distribute men’s and children’s footwear starting in spring 2011. Both collections will be available at department stores and specialty retailers. <wwd.com/footwear-news>

    Nike Kicks Off World Cup Campaign on Facebook - Nike today kicked off its FIFA World Cup campaign with a 10-minute film on Facebook, featuring Cristiano Ronaldo, Didier Drogba, Wayne Rooney and other top soccer stars. The video, viewable only when a visitor clicks the "Like" button, includes a 3-minute advertisement, called "Write the Future," with some of those top stars. It intersperses on-field action with reaction from viewers all over the world. Roger Federer, Kobe Bryant and Homer Simpson also make cameos. That spot will eventually roll out on TV programming in 32 countries. In June, Nike also plans to roll out an Elf Yourself-type online experience that lets consumers generate ripple videos and visuals from their own photos.  <brandweek.com>

    UK's Asda Starts Price War with England World Cup Shirts - Asda is gearing up for a price war after the supermarket started retailing England World Cup shirts for half the recommended retail price. <drapersonline.com/news>

    E-retail Sales Rose 10% in Q1 - Online retail sales grew 10% to $33.98 bn in the first quarter, marking the first time growth rates reached double digits since the second quarter of 2008, according to web measurement firm comScore Inc. <http://www.internetretailer.com/>

    Walmart Launched a New One-Stop Web Destination for Exclusive Video Game Savings and Sneak Peeks - At walmart.com/gamecenter, consumers can find special savings on a number of video games, as well as view previews and first-look exclusives of the latest titles. In celebration of the launch, Walmart is offering a $50 e-gift card to shoppers who pre-order a total of three or more of this year's popular titles, including Medal of Honor, Assassin's Creed: Brotherhood and Fallout: New Vegas. Also, all video games ordered on Walmart.com will be shipped for 97 cents each.  <licensemag.com>

    Gen-Yers Are Forcing the Industry to Push the Digital Envelope - Fashion companies catering to tweens and Gen-Y consumers — an age range spanning 7 to 30 — are in the vanguard of exploring technology’s multiplatform boundaries. These firms are trying to build their brands by enticing consumers who may be the most savvy and demanding about the Internet, the latest apps, video and social media.  Among the latest initiatives:

    • After launching at Kmart in July, Dream Out Loud by Selena Gomez will unveil ads and store displays featuring so-called snap tags, or special dove-shaped logos that users can photograph and then send to an e-mail address for prizes and coupons.

    • The Wet Seal Inc., based in Foothill Ranch, Calif., tapped into young women’s fascination with styling clothes through an iPhone app that lets them search and buy outfits in its stores.

    • Wholesaler NewBreed Girl, whose fashion tops and accessories retail from $20 to $40 to stores such as Topshop, is bypassing Facebook and revamping its Web site, where users can upload photos and videos to what it dubs “a chat room of images.”

    • London’s Scarlett & Crimson, in tandem with the launch of a 90-piece cosmetics line in the U.S. next spring, is developing an app for the iPad that would show tweens how to apply makeup.

    • Pittsburgh-based ModCloth.com, which sells vintage items and clothes by indie designers, lets users vote for designs “American Idol”-style in its “Be the Buyer” program, adding the pieces receiving the most votes to its collection. <wwd.com/retail-news>

    Prada Q1 Profit Jumps Almost Sixfold Driven by Sales in Far East - Prada SpA, owner of the eponymous Italian fashion label as well as the Miu Miu, Car Shoe and Church’s brands, said first-quarter operating profit rose almost sixfold, driven by increased sales in emerging markets.  EBITDA climbed to 64 mm euros from 11 mm. Revenue increased 26%.  A 36% jump in retail sales was led by a 62% increase in the Far East, where Prada has focused on opening new stores. Store sales rose 33% in the U.S. and 18% in Europe. <bloomberg.com/news>

    TSA Launches Review of Creative Media Account - The Sports Authority has launched a review of its $35 million to $40 million creative and media account, according to Advertising Age. <http://www.sportsonesource.com/>